The Effect of General Election on Stock Volatility and its Determinants: Evidence from Malaysia
This study analyzes the elections impact on stock market volatility in Malaysia through the Political Business Cycle across indices during GE13, GE14, and GE15. Using five volatility proxies, findings indicate distinct volatility patterns across indices. Log absolute return-based volatility shows mi...
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| Format: | Thesis |
| Language: | English English English |
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International Journal of Academic Research in Accounting, Finance and Management Sciences
2025
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| Online Access: | http://ir.unimas.my/id/eprint/49592/ |
| Abstract | Abstract here |
| Summary: | This study analyzes the elections impact on stock market volatility in Malaysia through the Political Business Cycle across indices during GE13, GE14, and GE15. Using five volatility proxies, findings indicate distinct volatility patterns across indices. Log absolute return-based volatility shows minor pre-election effects but occasional post-election spikes, reflecting temporary uncertainty. Range-based volatility highlights significant election-day reactions in GE13 and GE14, with stabilization afterward. GARCH-based volatility suggests prolonged post-election uncertainty, particularly in GE14. Squared return volatility captures delayed reactions, indicating that investors take time to process outcomes, while absolute return-based volatility shows short-lived spikes immediately after elections.
Regression analysis confirms that election-related factors such as the number of political parties, minority in government, and margin of victory significantly influence market volatility. More political parties stabilize broad indices but increase volatility in industrial and plantation indices. Minority governments reduce volatility in construction and finance indices but elevate it in plantation indices due to policy uncertainty. A larger margin of victory generally lowers volatility in construction and finance but raises it in industrial and plantation indices due to anticipated regulatory changes. Political Business Cycle variables, including monetary and fiscal policies, significantly influence volatility. Increased money supply raises volatility in industrial and plantation indices, while expansionary fiscal policies lower volatility in property and technology sectors. Foreign direct investment (FDI) stabilizes markets by enhancing liquidity and investor confidence, though sudden outflows due to political uncertainty can heighten volatility, particularly in finance and construction sectors. Stable and transparent governance policies are crucial in mitigating election-induced market instability. |
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